HELOC With a Profit and Loss Statement: How It Works
Some HELOC programs let business owners qualify on a profit and loss statement instead of tax returns. The P&L shows what the business earned over the last year or two, and the lender uses the net profit as your income.
At a glance
- Offered by some programs for self-employed borrowers.
- Usually must be prepared or signed by a CPA, enrolled agent or tax preparer.
- Covers 12 or 24 months, sometimes backed by a few months of bank statements.
- Income is the net profit, not the revenue.
How P&L qualifying works
Your tax preparer produces a profit and loss statement for the business covering the last 12 or 24 months. The lender takes the net profit, divides it by the months covered and uses that as your monthly income. Many programs also ask for a few recent bank statements to confirm that the deposits support the P&L.
Example
| Line | 12 months |
|---|---|
| Revenue | $400,000 |
| Expenses | −$260,000 |
| Net profit | $140,000 |
| Monthly qualifying income | $11,667 |
That monthly figure goes into your debt-to-income ratio. See HELOC with high debt-to-income for how it's used.
What makes a P&L acceptable
- Prepared or signed by a CPA, enrolled agent or licensed tax preparer, where the program requires it.
- Covers the full period the program asks for, usually 12 or 24 months.
- Lines up with your bank deposits. Big gaps between the two raise questions.
- The business has typically existed for at least two years.
P&L or bank statements?
A P&L counts your actual expenses. A bank statement program applies an assumed expense factor, often 50%, to your deposits. If your real expenses run well under that, a P&L can show more income. If your books are messy or your preparer won't sign one, bank statements or linked accounts are usually easier. Compare both in the bank statement HELOC guide.
Before you apply
- Ask your preparer early. A signed P&L can take a week or two.
- Make sure the P&L and your deposits tell the same story.
- Keep business and personal money in separate accounts.
Frequently asked questions
Can I get a HELOC with a P&L statement?
With some programs, yes. They qualify self-employed borrowers on a profit and loss statement, usually prepared or signed by a CPA, enrolled agent or tax preparer.
Do lenders use revenue or profit from a P&L?
Net profit. Revenue minus expenses, divided by the months the P&L covers, becomes your monthly qualifying income.
Does a P&L need to be prepared by a CPA?
Many programs require it to be prepared or signed by a CPA, enrolled agent or licensed tax preparer. Some accept a borrower-prepared P&L with extra documentation.
Is a P&L better than bank statements?
It can be if your actual expenses are lower than the expense factor a bank statement program would assume. Otherwise bank statements or linked accounts are often simpler.